Stocks move higher, so do the metals

September 22nd, 2018

Over the last two weeks, the Dow Industrials rose eight of the ten sessions, tacking on more than 800 points for a 3.2% increase and spreading optimism that the bull market is back on track. The Dow hit two records highs this week.

According to the Wall Street Journal, investors seems less concerned about the developing trade war between the US and China. However, Monday a 10% tariff will be imposed on $200 billion of Chinese imports, and the tariff is set to increase to 25% at year end, which begs the question: Will the Chinese retaliate? Trump is on record for saying that if the Chinese impose tariffs on US exports to China, he will slap still more tariffs on Chinese goods sold in the US.

The Journal also noted that investors were reassured by emerging countries’ central banks taking steps to “tame inflation and restore financial stability.” Central banks do so primarily by raising interest rates, which, according to most economists, is not good for economic activity. So, why the optimism?

But, emerging countries are not the only places that interest rates are moving higher. Over the last four weeks, US Treasuries suffered losses as interest rates increased. (When interest rate go up, bond prices go down.)

Overlooked has been the price action in gold and silver.

During this same two weeks, gold and silver inched higher, perhaps showing that at least some of the money seeking safe havens is going into the metals. At this time in the economic cycle, US Treasuries are considered by “sophisticated money” to be the ultimate safe haven.

As the dollar weakens, though, in the face of an expanding national debt, deficit spending for as far as the eye can see, and a trade war that could get really nasty, more money will move to the metals. The metals remain in long-term secular bull markets.

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